The Owners - Strata Plan No 66375 v King

[2018] NSWCA 170

Court of Appeal

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

The Owners – Strata Plan No 66375 v King [2018] NSWCA 170

Hearing dates:

5 and 6 April 2018

Decision date:

03 August 2018

Before:

Ward JA at [1];
Leeming JA at [335];
White JA at [388]

Decision:

1. Allow the appeal.
2. Set aside the orders made by Ball J as between the Owners Corporation (the appellant in these proceedings) and David and Gwendoline King (the respondents in these proceedings) and in lieu thereof order that judgment be entered in favour of the Owners Corporation against the Kings in the sum of $5,093,168.08, with costs.
3. Grant the respondents a certificate under the Suitors’ Fund Act 1951 (NSW), if applicable.

Catchwords:

BUILDING AND CONSTRUCTION – claim by owners corporation against persons alleged to be “developers” as defined by Home Building Act 1989 (NSW) s 3A – question of fact as to whether alleged “developers” were parties to building contract

 

APPEALS – drawing of inferences on appeal – evaluation of competing inferences – where primary judge failed to draw inference that respondents were parties to the building contract

BUILDING AND CONSTRUCTION – whether developers liable for “design defects” – statutory construction of Home Building Act 1989 (NSW) ss 18B and 18C – scope of notional contract pursuant to s 18C – whether breach of statutory warranty pursuant to s 18B(c)

Legislation Cited:

Building Services Corporation Legislation Amendment Act 1996 (NSW), Sch 1
Building Services Corporation Legislation Amendment Bill 1996 (NSW)
Environmental Planning and Assessment Act 1979 (NSW) ss 76A(1), 81A, 122, 123, 125
Environmental Planning and Assessment Amendment Regulation 1998
Environmental Planning and Assessment Amendment Regulation 1999
Environmental Planning and Assessment Regulation 1994 (NSW), cll 78A, 79E, 79G
Evidence Act 1995 (NSW), ss 69, 87
Home Building Act 1989 (NSW), ss 3, 3A, 6, 7, 7A, 7B, 10, 18A, 18B, 18C, 18D, 18E, 18F, 18G, Sch 4 cl 107
Home Building Amendment Act 2011 (NSW), Sch 1 cll 1, 2, 3, 31
Home Building Regulation 1997 (NSW), cl 8
Interpretation Act 1987 (NSW), s 33
Strata Schemes (Freehold Development) Act 1973 (NSW), s 11
Strata Schemes Management Act 1996 (NSW), s 8
Suitors’ Fund Act 1951 (NSW)
Supreme Court Act 1970 (NSW), ss 75A(5), 101
The Contractors’ and Workmen’s Lien Acts 1906 to 1921 (Qld), ss 4, 6, 9, 10, 19
Uniform Civil Procedure Rules 2005 (NSW), r 51.53

Cases Cited:

Ace Woollahra Pty Ltd v The Owners – Strata Plan No 61424 (2010) 77 NSWLR 613; [2010] NSWCA 101
Atkinson v Crowley [2011] NSWCA 194
Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140
Baron Corporation Pty Ltd v Owners of Strata Plan 69567 [2013] NSWCA 238
Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1
Carr v Western Australia (2007) 232 CLR 138; [2007] HCA 47
Chan v Acres [2015] NSWSC 1885
Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160
Dilosa v Latec Finance Pty Ltd [1966] 1 NSWR 259; (1966) 84 WN (Pt 1) (NSW) 557
Durbin v Perpetual Trustee Co Ltd (1995) NSW ConvR 55-725
East End Dwellings Co Ltd v Finsbury Borough Council [1952] AC 109
East West Airlines Ltd v Turner [2010] NSWCA 53
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523
Festa Holdings Pty Ltd (in liq) v Adderton [2004] NSWCA 228; (2004) 12 BPR 22,491
Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473; [1999] NSWCA 323
Forbes v Git [1922] 1 AC 256
Gardez Nominees Pty Ltd v NSW Self Insurance Corporation [2016] NSWSC 532
Holloway v McFeeters (1956) 94 CLR 470; [1956] HCA 25
Hume Steel Ltd v Attorney-General (Vic) (1927) 39 CLR 455
Hunter Douglas Australia Pty Ltd Perma Blinds (1970) 122 CLR 49
Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8
Masters Home Improvement Australia Pty Ltd v North East Solutions Pty Ltd [2017] VSCA 88
Masters v Cameron (1954) 91 CLR 353; [1954] HCA 72
Metal Manufacturers Ltd v Lewis (1988) 13 NSWLR 315
MyEnvironment Inc v VicForests (2013) 42 VR 456; [2013] VSCA 356
National Commercial Banking Corporation of Australia Ltd v Cheung (1983) 1 ACLC 1326
NEC Information Systems Australia Pty Limited v Linton (1985) NSW ConvR 55-240
Payne v Parker [1976] 1 NSWLR 191
Pisano v Dandris [2014] NSWSC 1070; (2014) 17 BPR 33,583
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355; [1998] HCA 28
Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corp Pty Ltd (No 1) (1993) 178 CLR 379
RHG Mortgage Ltd v lanni [2015] NSWCA 56
SAS Realty Developments Pty Ltd v Kerr [2013] NSWCA 56
Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909
Stucoid Pty Ltd v Stadiums Pty Ltd (1960) 107 CLR 521; [1960] HCA 41
SZTAL v Minister for Immigration and Border Protection [2017] HCA 34; (2017) 91 ALJR 936
The Craftsmen Restoration & Renovations v Boland [2008] NSWSC 660
The Owners – Strata Plan No 64757 v MJA Group Pty Ltd (2011) 81 NSWLR 426; [2011] NSWCA 236
The Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612
The Owners Strata Plan No 66375 v Suncorp Metway Insurance Ltd (No 2) [2017] NSWSC 739
The Owners Strata Plan No. 68372 v Allianz Australia Insurance Ltd [2014] NSWSC 1807
Valuer-General of New South Wales v In Adam Pty Ltd [2012] NSWCA 20
Vero Insurance Ltd v Kassem [2011] NSWCA 381; (2011) 86 ACSR 607
Victims Compensation Fund Corporation v Brown [2003] HCA 54; (2003) 77 ALJR 1797
West v Government Insurance Office (NSW) (1981) 148 CLR 62; [1981] HCA 38

Texts Cited:

Lewison and Hughes, The Interpretation of Contracts in Australia (2012)
Pearce and Geddes, Statutory Interpretation in Australia (8th ed, 2014)

Category:

Principal judgment

Parties:

The Owners – Strata Plan No 66375 (Appellant)
David Russell King (First Respondent)
Gwendoline Louise King (Second Respondent)

Representation:

Counsel:
M Ashhurst SC with P Bambagiotti (Appellant)
I G Roberts SC with L Shipway (Respondents)

  Solicitors:
Mills Oakley (Appellant)
William Roberts Lawyers (Respondents)

File Number(s):

2017/205467

Publication restriction:

Nil

 Decision under appeal 

Court or tribunal:

Supreme Court of New South Wales

Jurisdiction:

Equity – Technology and Construction List

Citation:

[2017] NSWSC 739

Date of Decision:

9 June 2017

Before:

Ball J

File Number(s):

2007/266631

Headnote

[This headnote is not to be read as part of the judgment.]

The appellant, the Owners Corporation, sued the respondents, Mr and Mrs King (among other parties) in relation to alleged building defects at a property in Camperdown, previously owned by the Kings.

The primary judge dismissed the Owners Corporation’s claim against the Kings on the basis that the Kings were not “developers” as defined by s 3A of the Home Building Act 1989 (NSW), because they were not parties to the relevant building contract with the builder. His Honour also held that even if the Kings were “developers”, they were not liable for certain “design defects”, because the builder was not liable for those defects.

The appellant argued that the primary judge erred: in failing to draw the inference that the Kings were parties to the building contract (grounds of appeal 1 and 2); and in finding that in any event the Kings were not liable for the “design defects” (grounds of appeal 3 and 4).

The Court (Ward, Leeming, and White JJA) held:

As to grounds of appeal 1 and 2, unanimously allowing the appeal:

Per Ward JA at [210], [220], [232]; Leeming JA at [336]; White JA at [388]: the most likely inference was that the Kings formally executed the building contract, and did so in their personal capacities.

As to grounds of appeal 3 and 4, the majority (Ward and White JJA) allowing the appeal (Leeming JA dissenting):

Per Ward JA at [327]-[328], [332]: on the proper construction of s 18C of the Home Building Act, the Kings are liable under the notional contract for breach of the statutory warranty implied by s 18B(c), irrespective of the builder’s liability. Even if the Kings’ liability is limited to the scope of the builder’s liability, the Kings would still be liable in the same amount, for the reasons given by White JA.

Per White JA at [389]-[390], [408]-[410]: the Kings are liable under s 18C for breach of the statutory warranty implied by s 18B(c), because the builder is liable for breach of that warranty. The builder warrants that the construction of the work in accordance with the plans and specifications will comply with the law.

Per Leeming JA (dissenting) at [368], [385], [387]: the Kings did not breach the statutory warranty implied by s 18B(c), because they are taken to have performed the building works in accordance with the plans and specifications in the hypothetical contract between them and the Owners Corporation. Based on the submissions hitherto advanced, the statutory warranties should not be construed so as to impose on a builder liability for failing to identify defects in plans and specifications which it was not engaged to prepare. The appeal should be allowed on grounds 1 and 2 (with judgment of $4,622,859.69 in the appellant’s favour), and the parties should be permitted to be heard further on grounds 3 and 4.

Judgment

1. WARD JA: This matter involves a dispute as to the liability for building defects in relation to a mixed residential and commercial strata development in Camperdown known as “The Grace”. The development involved the conversion of a warehouse complex originally built in 1928.

2. The Owners – Strata Plan No 66375 (the Owners Corporation), the appellant in these proceedings, commenced proceedings in 2007 in the Technology and Construction List of the Equity Division against various persons and entities in relation to the building defects: the insurer who had provided home warranty insurance in respect of the building works (Suncorp Metway Insurance Ltd, to which I will refer as Suncorp); the builder (Beach Constructions Pty Ltd (which was in liquidation by the date of the hearing at first instance), to which I will refer as Beach); the previous owners of the property the subject of the development, Mr David King and his mother, Mrs Gwendoline King, who are the respondents to this appeal (and to whom I will refer jointly as the Kings); and Meridian Estates Pty Ltd (Meridian), a company of which the Kings were the sole directors and which the primary judge held was the developer of the development (under an agreement entered into with the Kings).

3. During the course of the hearing at first instance, the dispute between the Owners Corporation and Suncorp was resolved, on terms that meant that Suncorp’s actual liability was dependent on findings in due course to be made by the primary judge in respect of a number of the claimed building defects (see The Owners Strata Plan No 66375 v Suncorp Metway Insurance Ltd (No 2) [2017] NSWSC 739 at [2]). None of Suncorp, Meridian, or Beach has taken any part in this appeal.

4. The primary judge dismissed the Owners Corporation’s claim against the Kings on the basis that they were not “developers” within the meaning of s 3A of the Home Building Act 1989 (NSW). In this regard, his Honour found that the Owners Corporation had not discharged its onus of establishing that the Kings had signed a contract, in their own capacities, in the form that had been signed by the director of Beach (at [40]; [48]). (The primary judge considered that in order to establish that the Kings were “developers”, it was necessary for the Owners Corporation to prove that the Kings were a party to the building contract, having regard to the decisions in Ace Woollahra Pty Ltdv The Owners – Strata Plan No 61424 (2010) 77 NSWLR 613; [2010] NSWCA 101 (“Ace Woollahra”) and Baron Corporation Pty Ltd v Owners of Strata Plan 69567 [2013] NSWCA 238, in light of the statutory provisions applicable at the time (see [5])). The primary judge found against the Owners Corporation on its alternative case that Meridian had entered into the contract as agent for the Kings (at [50]-[54]). (There is no appeal from the finding on that alternative case, as was clarified during the course of argument on appeal – see AT 37.9-15.)

5. In relation to a number of the defects claims (namely, as to fire and safety defects, acoustic defects, seals on doors to goods lifts, absence of heat detectors in the residential units, and inadequate provision for stormwater overflow in the balconies’ drainage system), which were claims for breach of the warranty implied by s 18B(c) of the Home Building Act, the primary judge concluded in essence that, even had the Kings been “developers” for the purpose of that Act, these claims would have failed because the relevant work performed by Beach did not include the defective design that caused these defects (at [67]; [69]; [70]; [89]). Had the claim against the Kings otherwise succeeded, his Honour would have held that the Kings were liable only for the costs of rectifying: water damage around the perimeter of the building; waterproofing defects with the bathrooms and ensuites; and waterproofing defects with the balconies (excluding the costs of installing stormwater overflows) (at [71]-[72]; [83]; [87]-[88]).

6. The Owners Corporation challenges the finding by the primary judge that it had not established that the Kings were parties to the relevant building contract between Beach and Meridian (grounds of appeal 1 and 2), as well as his Honour’s conclusion that the relevant work (for the purposes of the s 18B(c) warranty, implied by s 18C of the Home Building Act into a notional contract between the Owners Corporation and the “developer”) did not include the defective design that caused the defects referred to above (grounds of appeal 3 and 4).

7. For the reasons that follow, I would allow the appeal.

Background

8. The Kings acquired the land at Camperdown in 1990 and used the warehouse complex on the land for a number of years in their furniture business (with which a company controlled by the Kings was associated – King Furniture Australia Pty Ltd (King Furniture)).

9. In about August 1997, the Kings engaged a firm of architects, Bonus Architects Pty Ltd (Bonus), the principal of which firm was Mr Geoffrey Bonus, to investigate the redevelopment of the building, to prepare a concept plan, and to liaise with the planning authorities. Although there was no express finding by the primary judge as to the retainer of Bonus, there are in evidence copies of invoices issued by Bonus to the Kings in August, September, October and December 1998 and again in February 1999 for architectural services, those invoices referring variously to an accepted proposal of 17 August 1997 and an accepted proposal of 20 December 1997. There are also in evidence various documents in which Bonus confirmed the engagement of third parties on behalf of the Kings. (See also the affidavit of Mr John Fredericks, a director of Beach, sworn 8 November 2016 at [17]).

10. Plans for the development were prepared by Bonus and, in December 1998, Bonus lodged a development application with the South Sydney Council. Meridian was named as the applicant on that application and the application was signed by the Kings (as the owners of the property) and by the Kings in their capacity as directors of Meridian under the common seal of the company. A cheque made payable to South Sydney Council was drawn on King Furniture’s account.

11. Pausing here, the application form was completed in block letters in handwriting that, from a lay perspective, appears to match the block letter handwriting on the later tender documents issued by Bonus (see from [23] below) (and other documents, such as the application for modification of the development consent), from which it may be inferred that someone from Bonus completed the initial development application. Indeed it seems likely (from a comparison with other documents signed in Mr Bonus’ name) that this was the handwriting of Mr Bonus himself. (See also the similar handwriting on the Bonus Consulting memorandum of 7 June 1999). However, no finding to that effect was made by the primary judge and (as is relied upon by the Owners Corporation in this appeal) no evidence was called by the Kings from Mr Bonus in the proceedings.

12. Development approval was granted in Meridian’s name on 8 April 1999.

13. Meanwhile, in about March 1999 (by reference to the footer of the document) a fee proposal was issued on the letterhead of “Bonus Consulting”. In subsequent correspondence to the Commonwealth Bank (the Bank), “Bonus Consulting” is described as a “division” of Bonus. This would explain the fact that on various documents (see for example the footer on a “Bonus Consulting” memorandum of 7 June 1999) the ACN specified is that of Bonus. The fee proposal was for the provision of project and development management services in relation to the proposed development. The footer of the fee proposal document included the description “Fee proposal 170399 CONS King” but also made reference to Meridian (something to which the Kings point in arguing that the retainer of “Bonus Consulting” was by Meridian, not the Kings personally). There was no evidence of any formal acceptance of that fee proposal but invoices issued on the Bonus Consulting letterhead were in due course paid.

14. It appears that in or about April 1999 Bonus invited Beach to tender for the construction of a display unit for the development because, by letter dated 11 May 1999, Bonus advised Beach “[o]n behalf of the proprietor, Meridian Estates” of acceptance of that tender (the contract documents there being said to include Beach’s revised tender letter dated 28 April 1999 as well as a Finishes Schedule dated 13 April 1999, Issue B). That letter records that it was copied to Meridian and the Kings. The executed display unit contract (again bearing the same block letter handwriting as in the development application, but also some other block letter handwriting) dated 13 May 1999 was a standard form “Lump Sum Contract for simple building works Edition 2” (SBW-Edition 2) and was entered into by Meridian, named as the “proprietor”, and Beach, as builder.

15. I interpose here to note that terminology used in the correspondence and documents over the period (variously, the terms “proprietor”, “principal”, and “owner”) was neither consistent nor always accurate. The correspondence in relation to the display unit illustrates the latter – since on no view of the facts was Meridian the proprietor of the property the subject of the development.

16. Over the period from March to July 1999, Bonus issued invoices, addressed to the Kings personally, for architectural services.

17. On 19 July 1999, on the letterhead of “Bonus Consulting” (with a footer reference to Bonus’ ACN), request was made by Mr Bonus to the Bank for the provision of “an offer for a staged facility”. The letter was said to be “[o]n behalf of “David and Gwen King/Meridian Estates Pty Ltd” and was shown as being copied to “David & Gwen King – Meridian Estates Pty Ltd”. This letter apparently followed some earlier correspondence with the Bank, since it referred to a facsimile transmission of 17 July 1999 from the Bank in which it appears some “additional information” had been requested by the Bank.

18. The letter stated that “[t]he facility would initially enable David and Gwen King/Meridian Estates Pty Ltd to fund costs to date and projected development costs to 31 October 1999 or beyond”. It was said that the drawdowns would commence in July 1999 and would have a cumulative total of $1.5 million by 31 October 1999. The “[a]nticipated draw downs” were to reach a cumulative total of $3.3 million by December 1999. The letter stated that “[l]ater, following satisfaction of conditions precedent to the overall loan facility, the construction funding component of the facility could be provided”. It was said that the total debt was not expected to exceed $12 million, of which the initial $1.5 million would form part. The letter stated:

Should conditions precedent to construction funding not be satisfied prior to the October draw down, and the construction commence regardless, November and December 1999 draw downs would be required for the estimated amounts as shown.

19. The Owners Corporation places emphasis on the following statements in the 19 July 1999 letter from Bonus to the Bank:

5.   Details and Experience of the appointed builder

No builder has yet been appointed for the construction of the project.

We propose that provision of details for the appointed builder to CBA be a condition precedent to the construction funding component of the facility. [By which it seems reference is being made to that component of the facility to be provided after the “initial $1.5M”, though that is not wholly made clear in the letter.]

6.   Building Contract and Documentation

…

We propose that provision of executed contract documents tothe satisfaction of CBA be a condition precedent to theconstruction funding component of the facility.

20. From the above, it can be seen that this letter referred both to “conditions precedent” and to “proposed” conditions precedent – it not being clear precisely whether the distinction was intentional or whether this is another example of imprecision in the use of language by Bonus. There was no evidence of any response by the Bank to this letter (nor were any loan approval or loan facility documents in evidence – though there was evidence as to a subsequent increase in a $12 million “Better Business Bill” facility, the borrower under that facility being Meridian – see [162] below).

21. The primary judge found that in around August or September 1999 Meridian and the Kings entered into a development agreement, pursuant to which Meridian agreed to undertake the development for a fee (the Development Agreement) (see judgment at [8]). Although an executed copy of the Development Agreement was not in evidence, it was common ground that such a document had been executed. Various copies of drafts of the agreement were in evidence. The primary judge noted that in various of the drafts there was a clause in which there was an acknowledgement by the Kings that Meridian is not a licensed builder “and will enter into a building contract on behalf of the Owner with a licensed builder” (see judgment at [10]). The drafts of the agreement that were in evidence also made provision for the appointment by the “Owner” (the Kings) of the “Developer” (Meridian) as the Owner’s attorney “for the purpose of executing all such documents and entering into all such transactions as may be necessary for the Developer to undertake the Development and perform the Contracted Services” (judgment at [9]).

22. On 18 October 1999, Bonus issued to Beach an invitation to tender for the construction work for the development (see judgment at [11]). The tender documents (a version of which formed part of the contract documents that were subsequently issued by Bonus) named Meridian as the Principal. I note that some of the pages of the tender documents as appearing in the appeal books bear the issue date of 21 December 1999 – including the page naming Meridian as Principal; the explanation for this being that there were various revisions made to the tender documents. (Disparity in the dates appearing in the documents is also a common feature in this case – again, nothing turns on this other than that it may give rise to caution against placing too much weight on other details in the documents, such as the identification of the parties to the documents.)

23. The bundle of tender documents issued by Bonus comprised: Conditions of Tendering; Tender Form; General Conditions of Contract; Special Conditions of Contract; Appendix to General Conditions of Contract “precompleted”; Specifications; and Drawings. The Annexure to the Australian Standard General Conditions of Contract that was included with the tender documents identified the Principal as Meridian.

24. The Conditions of Tendering included, in the contract details, that the General Conditions of Contract were to be type AS 2124-1992. Those General Conditions of Contract were included as annexures: AS 2125-1992 – Australian Standard General Conditions of Tendering and Form of Tender; and AS 2127-1992 – Australian Standard Form of Formal Instrument of Agreement.

25. The section of the Conditions of Tendering dealing with procedures after the tender period included provisions for acceptance of the tender, those including the following (clearly envisaging one of two alternatives):

Formal instrument of agreement: Required/Not required.

26. There was in evidence a copy of a letter dated 9 February 2000 from Beach to Bonus, advising Bonus of Beach’s “tender figure” for the project ($10,428,125.00). The letter stated that “[t]he list of tender documents are attached” but noted that a number of sub-sections of the specification were not the responsibility of the builder “and therefore have not been included in our tender”. Beach stated that it would wish to discuss those exclusions with Bonus at an appropriate time. The letter also stated that:

If our tender is acceptable we would wish to discuss and negotiate the Conditions of Contract.

27. There was also in evidence a copy of a facsimile transmission sent the following day (Thursday, 10 February 2000) to Bonus, to which Beach attached its “tender submission”, noting that certain information was outstanding and would be provided on “Monday of next week”. Senior Counsel for the Kings, Mr Roberts SC, suggests that the 9 February 2000 letter was sent under cover of the 10 February 2000 facsimile transmission, together with the tender documents (see AT 38), though nothing turns on whether the two letters were sent at the same time or on consecutive days.

28. The 10 February 2000 letter specified a List of Attachments and repeated the statement extracted at [26] above. The first of the attachments was the Tender Form (“Issue A: Tender Issue 18.10.99”). On the Tender Form, Meridian was named as the Principal. The specified attachments also included, among other things, a list of Clarifications and Qualifications; Amendments to Special Conditions of Contract; Amendments to 000 Preliminaries; and Amendments to General Requirements.

29. The tender documents submitted by Beach did not include, among other things, the Conditions of Tendering that included the statement extracted at [25] above (Annexure to the Australian Standard General Conditions of Contract, Part A), which contemplated an election as to whether there was to be a Formal Instrument of Agreement. (The Kings argue that, accordingly, it was not a requirement of the contract formed by acceptance of the tender that there be a Formal Instrument of Agreement – they say that if Beach had wanted a formal agreement it had the opportunity to return this document (see AT 38) and that it did not do so, although they accept that this was used as the basis on which the “contractor” prepared the tender – see at AT 41).

30. By letter dated 21 February 2000, the subject header of which was “Letter of Acceptance”, Bonus wrote to Beach, advising that “[o]n behalf of the principal, Meridian Estates Pty Ltd, we accept your tender for the construction of The Grace, Camperdown” (see primary judgment at [18]). The letter records that it was copied to Meridian and to the Kings.

31. There was no copy of the original 21 February 2000 letter in evidence (though it was common ground that one had been issued). The only copies of the 21 February 2000 letter in evidence are ones which contain internal references post-dating 21 February 2000 and which it is accepted were in fact copies of a revised letter of acceptance (still bearing the date of 21 February 2000) issued on 15 March 2000. So, for example, the letter issued on 15 March 2000 (though dated 21 February 2000) referred, in the contract details, at item [4] (in the list of sums not included in the contract sum) to an RTA revised specification of 14 March 2000; and the letter stated at item [12]:

12.   Order of Precedence for contract documents shall be as follows:

•   Firstly, this letter of Acceptance 15 March 2000.

•   Secondly, Beach Construction Pty Ltd letter of 10 February 2000 with attachments

•   Thirdly, AS2124 contract with annexures

•   Fourthly, the remainder of the contract documents in the order as provided elsewhere in the contract documents.

[my emphasis]

32. At item [13], the contract documents were identified as including, among others: Bonus’ Letter of Acceptance dated 15 March 2000; the AS2124 (Australian Standard) Contract with annexures; and Beach’s letter dated 10 March 2000 with attachments.

33. An incomplete copy of the 21 February 2000 document bears a barely legible fax imprint of March 2000. This version thus also seems to be a copy of the revised letter of acceptance following the first letter of acceptance that his Honour found was issued on 21 February 2000. The primary judge (at [18]) stated that the tender was accepted by Bonus on behalf of Meridian on 21 February 2000 and that a revised letter of acceptance was issued on 15 March 2000.

34. On 5 April 2000 and 10 April 2000, further revised letters of acceptance were issued (the letter issued on 10 April 2000 still bearing the date 5 April 2000, though having been sent after a revised draft had been sent on 6 April 2000 by Bonus to Beach for Beach’s review and comment – and Beach had commented thereon).

35. The primary judge noted that the final letter of acceptance (incorporating amendments from Mr Paul Hills, a director of Beach) was provided by Mr Bonus on 10 April 2000 (the letter still dated 5 April 2000, as noted above) (see primary judgment at [22]). Relevantly, the order of precedence of contract documents had changed by the time of the final letter of acceptance, as follows:

12.   Order of Precedence for contract documents shall be as follows:

•   Firstly, AS2124 contract with annexures

•   Secondly, this letter of Acceptance 5 April 2000.

•   Thirdly, Beach Construction Pty Ltd letter of 10 February 2000 with attachments

•   Fourthly, the remainder of the contract documents in the order as provided elsewhere in the contract documents.

36. Further, the final letter of acceptance still contemplated negotiation of the terms of the contract (thus seemingly envisaging that a formal contract document would be executed in due course).

37. Pausing here, the primary judge found (at [45]) that a contract came into existence at the time that Bonus, on behalf of Meridian, accepted Beach’s tender in the terms that had been agreed between Bonus and Beach. The Kings place weight on this finding (not challenged by the Owners Corporation on this appeal) as a matter supporting the inference that the Kings did not execute the contract documents (arguing that the Owners Corporation’s case would amount to the proposition that the contract that came into existence on acceptance of the tender had been novated or varied in breach of cl 48 of the General Conditions of Contract included in the tender documents – see further below from [172]).

38. There was debate in the course of the appeal as to the date by reference to which the Kings contend that the finding at [45] of the primary judge’s reasons should be understood – i.e., whether there was a binding contract found to be in existence on 21 February 2000 or not until the final revised letter of acceptance was sent on or about 10 April 2000. The significance of this debate goes to the references in the site meeting minutes to the issue and execution of contract documents. For present purposes I simply note that, after initially contending for the 21 February date (AT 38.12), or for that date or in the alternative at the latest about 11 April 2000 (AT 42.44), Mr Roberts SC ultimately contended that the finding at [45] should be read as being that the acceptance of the tender, by the revised 5 April 2000 letter forwarded on or about 10 April 2000, was what constituted the contract (see AT 57.35ff). Reading [45] of the primary judge’s reasons in context, that seems to me to be the correct reading.

39. The Owners Corporation did not challenge the finding that a contract came into existence on acceptance of the tender – be it in February or April 2000 – though emphasising that it was always intended that the parties would enter into a formal contract after the acceptance of the tender. However, in places its submissions did appear to put that issue into contest (see for example [1] of the Appellant’s Evidence Schedule handed up by Senior Counsel for the Owners Corporation, Mr Ashhurst SC, on 5 April 2018, where it was submitted that the acceptance of the tender did not create a contract due to the builder’s reservation of rights to discuss and negotiate the Conditions of Contract or alternatively the statements recorded in the minutes of site meetings 1-3 before the “final acceptance” of tender (by the letter dated 5 April 2000), which it is said clearly indicated that the parties intended that there was to be a formal contract). (See also the reply submissions at [1]-[2], where it was submitted that there were only two contracts: the display unit contract and the subsequent building contract.)

40. Returning to the chronology of events, work commenced on the site on 26 February 2000 – i.e., after the first (21 February 2000) letter of acceptance of the tender was issued but before the time at which, on my reading of his Honour’s reasons, there was a binding contract. Mr Fredericks explained in his affidavit that Beach was prepared to commence work in advance of a formal contract because Beach had previously been involved in a successful development with Bonus at Newtown Square (at [21]). Relevantly, however, it does not appear that the Bank funding had commenced at that stage.

41. From April 2000, roughly coinciding (as the Kings point out) with the issue of the 5 April 2000 letter of acceptance (but before the final revised letter of acceptance was issued on about 10 April 2000), the system of certification by Bonus of progress payments in respect of the work commenced. The first certificate of payment was issued by Bonus on 7 April 2000. The Kings place emphasis on the fact that the Certificates of Payment issued by Bonus throughout the course of the project identified Meridian as the Proprietor.

42. Certificate of Payment No 1 (and all subsequent certificates) was copied to Meridian, marked to the attention of David King, and included the statement:

THIS IS TO CERTIFY THAT IN ACCORDANCE WITH THE TERMS OF THE CONTRACT BETWEEN

THE PROPRIETOR         MERIDIAN ESTATES PTY LTD

AND THE CONTRACTOR      BEACH CONSTRUCTION PTY LTD

THERE IS DUE AND PAYABLE TO THE BUILDER THE SUM OF …

43. The Kings point to evidence from Mr Fredericks, who issued progress payment claims on behalf of Beach from time to time (or under whose supervision progress claims were occasionally issued by Mr Richard Townsend, the contracts manager at Bonus – see Mr Fredericks’ evidence at T 37.9-39), to the effect that the above statement on the payment certificates was accurate as at the date it was made. In this regard, I note that Mr Fredericks was taken in cross-examination to Certificate of Payment No 2 (dated 19 April 2000) and to his signed certification that payments to subcontractors had been made (his signature being dated 2 May 2000) and he agreed with the proposition that this represented an accurate statement of affairs as at the date of the document (T 37.27); and similarly he accepted that this was the case for a Certificate of Payment dated 7 April 2000 with the same certification signed by him, dated 10 April 2000 (T 37.7). Pausing here, it is not clear that Mr Fredericks was there accepting that he regarded as accurate the statement that Meridian was the Proprietor under the contract nor what he would have understood by that – nor does his subjective understanding or opinion assist, in my view, in the proper construction to be placed on the relevant documents.

44. Payments to Beach were recorded in Meridian’s accounts. No payments were made to Beach by either of the Kings personally. Some amounts were, however, paid by King Furniture prior to the commencement of the funding from the Bank. In particular, an initial payment claim of $58,000 was paid by King Furniture and a further progress claim for $285,071 was paid by King Furniture on 15 June 2000. There was a claim later made by Bonus on the Bank facility for repayment of moneys paid by “Meridian Estates P/L/David & Gwen King” totalling some $836,000.

45. In the course of the work, there were a number of site meetings, the minutes of seventeen of which were in evidence. I will set out in due course the relevant passages from the successive site minutes (see from [85] below). Suffice it at this stage to note that the first site meeting was held on 23 February 2000 (see primary judgment at [20]) and that the minutes of that meeting recorded that Bonus was “to prepare contract documents with a view to issuing them prior to the end of the week” (something that, it is common ground, did not occur within that timeframe). Those minutes record that the letter of acceptance was on behalf of “the owner”. The Owners Corporation accepts that, at that stage, acceptance of the tender was on behalf of Meridian. Its contention is that Meridian was at that stage acting as agent for the Kings but, on appeal, it does not challenge the primary judge’s conclusions in relation to that issue (AT 7.5).

46. The Owners Corporation points to the site meeting minutes as evidencing that the parties did not intend that acceptance of the tender would be a sufficient contract between them (see AT 7.43) and as giving rise to the inference that at some point the decision was made by the Kings that they would personally become party to the agreement with Beach.

47. The primary judge made reference (at [24]) to the minutes of site meeting No 9 held on 23 May 2000, which recorded (at [9.22]) that “[c]ontract documents arrived at Beach’s office on 25/2/00. Beach to review these documents and execute for issuing back to the client”. His Honour noted that the reference to “25/2/00” was almost certainly an error, and this is not disputed by the parties.

48. The primary judge recorded at [25] that the evidence of Mr Hills, a director of Beach, was that, at about 22 May 2000, he received two copies of the contract, consisting of the documents that formed the tender and its acceptance as well as a document entitled “Formal Instrument of Agreement”. Mr Hills’ affidavit sworn 8 November 2016 states (at [18]) that although he does not specifically recall signing the two copies of the “Formal Instrument of Agreement” and the General Conditions of Contract, he recognises one set of the initials – and the signature – appearing on both copies of the documents. He deposes (at [19]) that his usual practice in executing documents on behalf of Beach was to execute both copies of these documents and return them to the other party for execution by them. He did not recall receiving a copy of the contract executed by the Principal (see at [19]).

49. At T 24.8, Mr Hills accepted that the sequence of events, as he understood them, was that there was a tender on 10 February 2000, an acceptance of the tender on 21 February 2000, that work commenced almost immediately on the site, and that on 23 February 2000 the first site meeting occurred. He agreed that the details that needed to be resolved between him and Mr Bonus as to the contract works at that stage were not substantial (T 24.18).

50. The copy of the formal instrument executed by Mr Hills on behalf of Beach, which is completed in block handwriting (apparently the same as that on the tender documents and hence presumably that of Mr Bonus), names the “Principal” as “David & Gwen King/Meridian Estates P/L ACN 003 922 012”. It refers to the Tender dated 10 February 2000 (the date having been corrected in handwriting from the initial handwritten date of 9 February 2000 and the correction then having been initialled) and to the Letter of Acceptance dated 5 April 2000. Reference is also there made (against the item “Other Documents”) to Beach’s letter dated 10 February 2000. The date “19 May 2000” is inserted as the date the agreement is made (though it would appear from the handwritten annotations to the minutes of the site meeting on 16 May 2000 that the contract documents were not received by Beach until 22 May 2000).

43. Relevantly, there was no copy in evidence of any such contract documents signed by Meridian or by the Kings (and neither of the Kings – nor Mr Bonus, as already noted – gave evidence at the hearing). The only copies of the Formal Instrument of Agreement that were in evidence were the ones that had been signed by Mr Hills on behalf of Beach, one having been produced by the Kings on discovery and one from the records of Beach.

44. The Owners Corporation, in its submissions, notes that the Kings gave particulars of their defence dated 10 September 2012 in which it is said the Kings admitted that the construction contract (which they allege was between Meridian and Beach) was executed on or about 19 May 2000. The Kings say that nothing can be drawn from this – not least because the relevant letter providing those particulars was not in evidence before the primary judge – to which I will return in due course.

45. The bundle of contract documents issued by Bonus (and signed by Mr Hills) included the Tender documents (which, as noted earlier, identified the Principal as Meridian) and the 10 February 2000 letter from Beach, which included the statement that, if the tender was acceptable, it “would wish to discuss and negotiate the Conditions of Contract”; and the Australian Standard General Conditions of Contract AS 2124-1992 in which “Principal” is defined as meaning the Principal stated in the Annexure (see cl 2).

46. The Annexure to AS 2124-1992 was completed in handwriting and identified the “Principal” as “David & Gwen King/Meridian Estates Pty Ltd”, with the Principal’s address being noted as care of Bonus. There were various corrections (initialled in each case) to certain of the items in the annexure. There are two versions of the first page of Part A of the Annexure included in the appeal books, and a comparison shows that these are different in that the reference to cl 5.2 is completed in the first with the words “NOT APPLCABLE REFER CLAUSE 42.3” and in the second with the words “NOT APPLICABLE REFER 42.3”. Similarly, there are two different copies of the signed Formal Instrument of Agreement. This is consistent with Mr Hills’ evidence as to two counterparts of the formal documents having been signed by him.

47. Pausing here, cl 6 of AS 2124-1992 provides:

6.   EVIDENCE OF CONTRACT

6.1   Contract in Absence of Formal Instrument of Agreement

Unless a Formal Instrument of Agreement is executed by the parties, the agreement in writing between the parties for the execution of the work under the Contract, including documents or parts of documents to which reference may properly be made to ascertain the rights and obligations of the parties, shall evidence the Contract.

6.2   Formal Instrument of Agreement

If the conditions of tender require a Formal Instrument of Agreement, the Principal shall prepare in duplicate a Formal Instrument of Agreement and shall, within 28 days after the Date of Acceptance of Tender, forward it to the Contractor with a request that it is executed.

Within 14 days after being requested in writing by the Principal so to do, the Contractor shall execute both copies of the Formal Instrument of Agreement in the manner directed in writing by the Principal and return them to the Principal.

Within 14 days after receipt from the Contractor of the two copies of the Formal Instrument of Agreement duly executed by the Contractor, the Principal shall execute both copies, have them stamped (unless they are exempt from duty) and forward one copy to the Contractor.

56. Clause 48 of AS 2124-1992, headed “WAIVER OF CONDITIONS”, on which the Kings place reliance for the novation/variation argument adverted to above, provides:

Except as provided at law or in equity or elsewhere in the Contract, none of the terms of the Contract shall be varied, waived, discharged or released, except with the prior consent in writing of the Principal in each instance.

57. Returning to the chronology of events, Beach gave notification to Bonus by letter dated 30 October 2001 that in Beach’s opinion practical completion had been reached, effective 26 October 2001. A Certificate of Payment on Practical Completion was issued on 12 November 2001 (half the retention moneys then being released – see General Condition 5.7). At T 29.40, Mr Hills, having been taken to the final certificate of payment dated 13 June 2003, which identified Meridian as the client, accepted that there was nothing he was aware of to indicate that the certificate was incorrectly prepared “in the sense that the details of the client and the site and the amount of the invoice would be incorrect”.

58. An occupation certificate in relation to the building was issued on Meridian’s application on 16 November 2001.

Proceedings

59. As already noted, the proceedings were commenced in 2007. The hearing took place in May 2017. The lengthy delay between the filing of the initial summons in 2007 and the hearing of the matter in 2017 was explained as being due to the delay taken by the single expert (appointed by the parties) in the gathering of information and preparation of his report. One practical significance of the delay was that, as the proceedings were commenced prior to the amendments made to the Home Building Act by Sch 1, cll 1-3 of the Home Building Amendment Act 2011 (NSW) (the 2011 Amendment Act), the amendments made to s 3A relating to the application of the statutory provisions to developers (under which there would be no question but that the Kings were “developers”) do not apply.

60. Another significance of the delay is the well-recognised impact of the passage of time on the reliability of human memory and the understandable difficulty in locating documents many years after the relevant events (at least where those documents may not have been retained by the relevant entities such as the Bank). There was reference by the primary judge (at [44]) to the passage of 17 years from the events in question in the context of this being a likely explanation for the fact that the Kings did not give evidence. It may also explain the non-production of documents from the Bank’s records or from other sources. That said, as the Owners Corporation points out, the Kings were on notice of the proceedings from a much earlier time than the date of the final hearing – and hence must have had the opportunity to obtain or preserve relevant evidence at a time much earlier than the final hearing.

Grounds of Appeal

61. By its amended notice of appeal filed 22 December 2017, the Owners Corporation appeals pursuant to s 101 of the Supreme Court Act 1970 (NSW) on the following grounds:

1.   The learned judge below erred at law in finding that that [sic] the Appellant had not discharged its onus in establishing that the Respondents signed the underlying construction contract in the form executed by Beach Constructions Pty Ltd (as principals). These errors included:

i)   a failure to draw the available inference that the critical statements attributed to representatives of Bonus Architects Pty Limited (“Bonus”) in the minutes of the site meetings, regarding the execution of the construction contract by the Respondents, were from information provided to Bonus by the directors of Meridian Estates Pty Limited (who were the Respondents);

ii)   Finding that the only inference that could reasonably be drawn from the failure of the Respondents to give evidence was that they had no recollection whether they signed the subject contract (paragraph [44] of the judgement) when there was no evidence before the Court to that effect.

iii)   failing to draw the available inference from the Respondents’ decision to not give evidence, or to call Mr Bonus to give evidence that the evidence of those witnesses would not have assisted the Respondents in relation to the issue of whether the critical statements attributed to Bonus in the site meeting minutes regarding the execution of the construction contract were from information provided to Bonus by the Respondents or in relation to the question of whether the respondents signed the subject construction contract;

iv)   by drawing the inference (at [41] of the judgment) that the absence of any further reference in the site meeting minutes to a copy of the executed construction contract needing to be provided to Mr John Stringer (the Commonwealth Bank of Australia Limited’s representative) could be due to the Commonwealth Bank of Australia Limited realising that a contract was already in existence and therefore nothing else needed to be done when the history of the bank’s requirements as recorded in the site meeting minutes, did not support that conclusion;

v)   by finding (at [46] of the judgment) that the failure of the Respondents to produce a copy of the subject contract signed by them was “strong evidence that the copies that were sent to them were never executed.”

vi)   by finding (at [47] of the judgment) that the parties’ subsequent conduct “was consistent with the contracting party being Meridian and not [the Respondents]”.

vii)   by failing to find that the evidence that the primary judge accepted, that Mr Hills had signed the contracts nominating the Respondents personally as parties to the contract, and that such contracts had been provided to the Respondents, was sufficient in the circumstances of the building works proceeding (even in the absence of a finding that the Respondents had executed such contracts) to establish acceptance by conduct by the Respondents to be parties to the building contract;

viii) by not admitting into evidence for all purposes (pursuant to s 87 of the Evidence Act (1995)) the statement made to Mr Fredericks by Mr Bonus shortly before 18 April 2000 that “the Kings are waiting on advice as to whether they should be a party to the contract …”.

2. The learned judge below erred at law in failing to find that the Respondents were “Developers” (within the meaning of s 3A of the Home Building Act 1989 (NSW)) (“the HBA”) of the Commercial strata development in Layton Street Camperdown known as “The Grace” (the “Property”) and were thereby liable to the Appellant (pursuant to s 18C of the HBA) for the building defects found to exist in the property by the primary judge.

3. The learned judge below erred at law (at paragraph [67] of the judgment) in finding that even if the Respondents had been “Developers” of the Property they were not liable to the Appellant in damages (pursuant to the operation of s 18C of the HBA) for breach of the warranties implied by operation of s 18B(c) of the HBA for the “design defects” alleged by the Appellant because the builder “Beach Constructions Pty Ltd (“Beach”) was not responsible for the relevant design that gave rise to these defects.

4.   The learned judge erred at law for failing to find in respect of the “design defects” that:

i)   (consistently with The Owners Strata Plan No. 68372 v Allianz Australia Insurance Limited [2014] NSWSC 1807) a builder’s liability for breach of the statutory warranties implied by operation of s 18B of the HBA is not dependent on whether the builder was responsible for the design of the defective works; and/or

ii) even if the builder of the Property would not have been liable for the “design defect” pursuant to the operation of s 18B of the HBA because the builder was not responsible for the design that defence does not assist the Respondents in respect of a claim brought pursuant to s 18C of the HBA.

62. There are thus two aspects to the appeal from his Honour’s decision: first, as to whether the primary judge drew the proper inference on the issue as to whether the Kings were parties to the construction contract with Beach, and therefore developers within the meaning of s 3A of the Home Building Act; and, second, whether (if the Kings are found to be developers) the Kings are liable for breach of statutory warranties for what the primary judge described as design defects.

Grounds 1 and 2 – Were the Kings “developers”?

Primary judge’s reasons

63. The primary judge addressed the Owners Corporation’s primary case on this issue from [34] of his reasons, noting that there were three steps to that primary case: first, that an inference should be drawn that the contract with which the site meeting minutes are concerned is the contract that was signed and initialled by Mr Hills; second that it should be concluded from the site meeting minutes that the Kings signed that contract; and, third, that by signing the contract the Kings became personally bound by it.

64. His Honour was prepared to accept the first of those matters (see primary judgment at [35]). His Honour noted that the minutes described the preparation of the contract of the sending of that contract to Beach to be signed; and that the procedure described in the minutes was consistent with the procedure set out in cl 6.2 of AS 2124 (see [55] above) where a Formal Instrument of Agreement was required. His Honour accepted the evidence of Mr Hills that he had executed two copies of the contract which included a Formal Instrument of Agreement and observed that it was difficult to imagine that what was being discussed at the meetings was some other contract.

65. The primary judge did not accept the second of those matters (see primary judgment at [36]), namely that the evidence established that the Kings had signed the contract executed by Mr Hills.

66. As to the third of those matters (namely, whether, by signing the contract, the Kings became personally bound by it), this seems to have been addressed briefly (albeit in the context of the sufficiency of the evidence of the site meeting minutes) at [40], when his Honour said that “… in my opinion, the minutes are not sufficient evidence to prove that the Kings actually did sign the contract in their own capacities” (my emphasis).

67. Turning back to the second of those three matters, at [37]-[38] the primary judge addressed a submission by the Owners Corporation that the minutes of the site meetings were business records admissible as evidence of the facts asserted in them under s 69 of the Evidence Act 1995 (NSW). His Honour said that the critical representations fell into two categories: first, those concerned with the progress in the signing of the contract by the Kings and, in particular, the representation in the minutes of the meeting held on 11 July 2000 that “the contract had been executed by [the Kings]”; and, second, those concerned with the need to provide a copy of the signed contract to Mr Stringer (the quantity surveyor appointed by the Bank) so that he could complete his initial assessment for the Bank to allow funding to commence (referring, by way of example, to statements recorded in the site meeting minutes of 23 May 2000 and 11 July 2000).

68. The primary judge accepted (at [39]) that it might be inferred that both sets of representations were made by the representatives of Bonus who attended the meetings, but went on to say:

However, it is far from clear that any of the representatives from Bonus had or could reasonably be supposed to have had personal knowledge of any of the facts asserted in the minutes concerning execution of the contract by the Kings or the requirements of the Commonwealth Bank before it would advance money under the facility. There is no reason to believe that anyone from Bonus saw the Kings execute the contract. There is no suggestion that anyone from Bonus saw a copy of the executed contract. Similarly, there is no reason to believe that anyone from Bonus had personal knowledge of the circumstances under which the Commonwealth Bank was or was not willing to advance money.

69. Pausing there, the Owners Corporation argues that whether or not any Bonus representative had or could reasonably be supposed to have personal knowledge of the matters to which his Honour referred in the passage extracted above (which is taken from [39] of the reasons) is irrelevant because this does not exclude the documents being taken into account for the purpose of drawing inferences from the fact that those statements were made (see AT 19.40ff) – in other words, while lack of personal knowledge of those matters might go to the weight of the evidence it does not exclude the drawing of the inference that the Owners Corporation said ought be drawn therefrom. It is submitted that his Honour has not taken into account the available inference that the information as to the signing of the contract by the Kings came from Bonus’ clients themselves. Emphasis is placed on the fact that the minutes were sent to the Kings and they did not correct the statements recorded therein.

70. At [40], the primary judge said that, even if the conclusions (at [39]) were wrong, in his opinion the minutes were not sufficient evidence to prove that the Kings actually did sign the contract in their own capacities. His Honour accepted that if the minutes were admissible as evidence of the facts stated in them they provided “some” evidence that the Kings executed the contract “since that is what they say”, but continued:

However, the strength of that evidence is undermined by the fact that it is not clear from the minutes precisely who made the relevant statements to the meetings and the basis on which they did so. Predictions in the minutes concerning when the contract would be prepared and distributed by Bonus, which were made by Bonus, were on occasions proved by subsequent events to be unreliable. Moreover, the minutes do not record that a signed copy of the contract was returned to Beach, as might have been expected if both copies had been signed by the Kings. Nor do the minutes record that Mr Stringer had received a signed copy, as might have been expected given what was said in the previous minutes concerning the significance of that matter.

71. His Honour noted (at [41]) that the minutes of the meeting on 18 July 2000 did record that Mr Stringer (the quantity surveyor) had attended the site that day and that an agreement was reached as to the procedure for future progress claims. His Honour accepted that this was some evidence that Mr Stringer had been provided with a signed copy of the contract (as was stated would happen in the earlier minutes) and that the absence of anything more in the minutes on the subject might be explained on the basis that once Mr Stringer had been provided with a copy of the signed contract it was no longer necessary to address the issue at the meetings. However, his Honour proceeded to say:

However, it might equally be said that it was no longer necessary to address the issue at the meetings once Beach had returned the contracts to Bonus, but they continued to do so. Moreover, the fact that the minutes said nothing more about the contract could be explained by the fact that the bank realised that a contract was already in existence and nothing more needed to be done.

72. As to the statements extracted in the above passage, the Owners Corporation says that these were mere conjecture by the primary judge.

73. In relation to the reliance placed by the Owners Corporation on the fact that there was no evidence that the Kings had sought to correct the minutes of the meeting on 11 July 2000, the primary judge said that, equally, there was no evidence that the Kings read the minutes or, if they did read them, that by the time of the following meeting they thought it necessary to correct them (at [42]).

74. As to the submission by the Owners Corporation that statements in the minutes concerning the need to sign the contract in order for the Bank to provide funding were corroborated by the fact that King Furniture had made a progress payment of $285,071 to Beach on 15 June 2000, the primary judge said that this did not establish that the Bank had advanced no funds prior to 18 July 2000 and that it was equivocal “because it is equally consistent with the possibility that the funding provided by the bank did not cover the full project costs” (at [43]). (I interpose here to note that prior to the reference in the site meeting minutes to the construction contract being executed by the Kings and being sent to the Bank’s quantity surveyor, the only evidence of construction payments being made appears to be by way of cheques drawn from King Furniture. The Owners Corporation argues that there is no basis to suggest that the Bank provided project funding based on something other than a fully concluded and documented building contract.)

72. In relation to the fact that the Kings were available to give evidence and did not do so, the primary judge adverted to the Jones v Dunkel inference that might be drawn therefrom (a reference to Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8), to the effect that the Kings’ evidence would not have assisted their case, but said that in his opinion “the only inference that can reasonably be drawn from their failure to give evidence is that they have no recollection whether they signed the contract signed by Mr Hills or not and why King Furniture Australia Pty Ltd made the progress payment on 15 June 2000”. His Honour considered that, given the relevant events occurred approximately 17 years ago, this was not surprising (see [44]).

73. As to the other consideration relied upon by the Owners Corporation (that it was inconceivable that the parties would have proceeded with the project absent a signed contract), the primary judge considered that this did not take the matter any further (at [45]). His Honour said that a contract came into existence at the time that Bonus accepted the tender; that the acceptance clearly set out the terms of the contract; that the General Conditions of Contract (AS 2124) specifically catered for the possibility that there would not be a Formal Instrument of Agreement and the Conditions of Tender did not state one way or another whether a Formal Instrument of Agreement was necessary; and that, following acceptance of the tender, work started on the project (“consistent with a contract coming into existence at that time”). His Honour considered that there was no need to sign a formal contract that included a Formal Instrument of Agreement (the Owners Corporation not having pointed to any differences of substance, other than the addition of the Kings as parties, between the contract constituted by acceptance of the tender and the contract signed by Mr Hills).

74. The primary judge also pointed (as a matter against the evidence relied upon by the Owners Corporation) to the fact that no contract signed by the Kings had been found (at [46]). His Honour accepted that the explanation could be that the copies had been lost (which he considered was to some extent supported by the fact that the executed Development Agreement had been lost), but thought it unlikely that both copies of the contract had been lost (noting that two copies of the contract signed by Beach were in evidence and that no one appeared to have paid close attention to where those contracts had come from (although it was suggested that one copy came from discovery by the Kings and another from Beach) (at [46])). His Honour said:

… it is difficult to understand why the Kings would have made a copy of the contract before they signed it; and if the copy they discovered was taken from the original, that is strong evidence that the copies that were sent to them were never executed.

78. At [47], his Honour said that the parties’ subsequent conduct was also relevant to the question of whether the Kings signed the contract and were parties to it. His Honour considered that that conduct was consistent with the contracting party being Meridian and not the Kings – referring to the facts that from the time it was said that the Kings signed the contract Beach had issued invoices addressed to Meridian; that Bonus issued certificates of payment naming Meridian as “The Proprietor” and the invoices were paid by Meridian from an account in its name; and that on 16 November 2001 the occupation certificate was issued in the name of Meridian.

Site meeting minutes

79. It is convenient here to examine in some detail the statements recorded in the site meeting minutes, on which the Owners Corporation places weight but to which it does not appear that the primary judge was taken in any great detail at the hearing at first instance.

80. At the hearing, objection was taken for the Kings to admission of the site meeting minutes (see T 80.42ff) to the extent that they were relied on as business records to prove a representation (on the basis that they did not meet the requirements of s 69 of the Evidence Act), but the primary judge was told that “We are content for them to go in as records or as minutes that record somebody’s understanding of the facts that are recorded, but they don’t demonstrate anything beyond that” (T 81.7-9). At T 81.45, his Honour gave the ruling that he would admit the minutes and what he would make of them, his Honour would deal with in his final judgment – I read that as, in effect, a ruling that the minutes were admitted subject to weight (to be dealt with as necessary in the final reasons). As it was, there was no limitation placed on the admission of the site meeting minutes into evidence but (as set out above) the primary judge made various observations as to the reliance that could be placed upon them.

81. As noted earlier, following the initial acceptance of the tender there were regular site meetings attended initially by representatives from Bonus, Beach and Lonsdale (the project manager). The minutes of these site minutes were prepared by the project manager, Michael Kirkby (from Lonsdale), and then distributed to various recipients. The minutes generally followed the same format, with items updated or removed (or added) as the project proceeded; and with entries in the final column noting responsibility for particular items or if they were to be noted. An obvious inference is that items removed from the minutes had been satisfactorily dealt with (one way or another) or were no longer considered relevant by the time they were removed. As and from site meeting No 5, the minutes record distribution of copies thereof to the Kings.

82. Relevantly, for a number of the site meetings there were in evidence duplicate copies of the site meeting minutes, one or more of which had been annotated in handwriting. It may be inferred that the annotations were made by one or other of the representatives of Beach who had been at those meetings (since the only copies of the minutes were produced by Beach (see AT 10.40) and since the only identification of handwriting on any one of the copies was that of Mr Fredericks (in respect of the minutes of 20 June 2000 – see T 40.33)). It is also relevant to note that it appears from the text of at least two of the copy minutes that the comment typed in the minutes as circulated relates to something communicated after the site meeting in question (see for example item 5.27 in the minutes of site meeting No 5 (18 April 2000)).

83. The handwritten annotations must logically have been placed on particular copies of the minutes after receipt by the particular recipient. At least in relation to the handwritten annotations it cannot be inferred (and was not, as I understand it, contended), that other meeting attendees or recipients of the minutes had seen or approved those handwritten annotations (though at subsequent site meetings the subject matter of those comments may well have been discussed and then recorded in the minutes of those meetings).

84. The relevant items for present purposes are those appearing under the heading “Administration” in each of the site meeting minutes.

Site Meeting No 1 – 23 February 2000

85. The minutes of the first site meeting held on 23 February 2000 include the following:

1.22	A letter of acceptance was issued by bonus Architects on behalf of the owner on Friday. Beach to review this letter and confirm they are satisfied with its contents.	Beach
1.23	Bonus to prepare contract documents with a view to issuing them prior to the end of the week.	Bonus
1.24	The aim is to have the contract documents executed by the end of the week.	Note
1.25	Bonus advised that John stringer & Assoc would be assessing the progress claims on behalf of the Commonwealth Bank who are funding the project. Bonus to discuss the method of assessment with John Stringer and arrange for a meeting between him and Beach to agree the method by which Progress claims will be processed.	Bonus

86. Each of the copies of the minutes of this meeting in evidence has a fax imprint at the top indicating that the minutes were sent by Lonsdale (to Beach) on 22 March 2000. Two of the copies bear handwritten annotations but not in relation to any of the items under the heading “Administration”.

87. Item 1.22 is consistent with the accepted fact that the first letter of acceptance issued by Bonus was dated 21 February 2000. Insofar as it records that the letter of acceptance was issued “on behalf of the owner”, this can be no more than the understanding of whoever prepared the minutes (Mr Kirkby of Lonsdale) and may well reflect the lack of precision in the terminology used by Bonus throughout its documents – since it is clear that the letter of acceptance in its terms is on behalf of Meridian but that Meridian was not the owner of the property.

88. It is common ground that the contract documents were not issued, let alone executed, by the end of the week following the first site meeting. Hence, from the earliest site meeting, the observation by the primary judge (at [40]) as to mispredictions in the minutes cannot be gainsaid – see [70] above. Nevertheless, misprediction is in principle different from misstatement (as the cases on misleading and deceptive conduct make clear); and, it should also be noted that at least where some mispredictions or misstatements were made in the minutes it appears they were corrected in the minutes of the next meeting: see for example item 6.21 at the site meeting of 2 May 2000 which was later corrected in item 7.21 at the site meeting of 9 May 2000; and item 15.27 of the site meeting of 4 July 2000 which was later corrected in item 16.28 of the site meeting of 11 July 2000.

Site Meeting No 2 – 28 March 2000

89. The second site meeting was held on 28 March 2000 (though the typed minutes bear the date 29 March, corrected by hand on one of the copies). The following items are recorded:

2.32	Beach issued a response to the Bonus letter of acceptance. There are still a number of issues to be sorted out before contract documents can be executed.	Note
2.33	Bonus to met [sic] with Beach to finalise the contract details with a view to have the contract documents issued by the end of this week and executed by early next week.	Bonus
2.34	John Stringer will attend site meetings on the last Tuesday of each month with a view to assessing the progress of works for progress claims. Beach should have their claim prepared in a draft form for this meeting.	Note
2.35	As soon as the contract documents are in place John Stringer should be issued with a copy to enable him to provide his initial assessment to the bank to allow funding to commence.	Bonus
2.36	While Beach advised last week that they will be submitting a claim at the end of March and will require payment of close to $500,000 for the end of April, it was agreed that a claim of $50,000 could be processed without the assessment of the QS or the funding by the bank.	Note

90. Against items 2.32, 2.34, and 2.35 on one of the copies is a handwritten tick. Against the item 2.33 on that same copy is the handwritten annotation “AWAIT MEETING”. It is not clear whose handwriting this is. Both copies of the minutes bear a handwritten list on the first page (presumably of the distribution of the minutes within Beach, since the initials correspond to three persons from Beach):

FILE

RT [Richard Townsend]

JF [John Fredericks]

PH [Paul Hills]

Hence it may be inferred that the handwriting is from someone at Beach on the annotated copy of these minutes.

91. It was following this meeting that the first progress claim was certified for payment in the amount of $54,000. (The cheque drawn 19 April 2000 on King Furniture’s account for $58,000 appears to be in payment of this claim – see the annotation on the “with compliments” slip to that effect).

92. It is relevant here also to note the reference in item 2.35 (which is repeated, with varying degrees of emphasis, in later minutes up to the time the minutes record the execution of the contract documents) as to the need to provide the executed contractual documents to John Stringer & Associates (the quantity surveyors) for the purposes of enabling the Bank funding to commence. The Owners Corporation maintains that references to the executed contract documents being required so as to allow the Bank funding to commence must have related to the proposed condition precedent suggested by Bonus in relation to the funding by the Bank, namely that it approve the construction contract.

Site Meeting No 3 – 4 April 2000

93. The third site meeting was held on 4 April 2000. Unlike the first two site meetings, Mr Bonus was not present at that or a number of later meetings, though on each occasion there was at least one representative from Bonus (and usually two). Mr Bonus was, however, included on the distribution list for the minutes. Again, one of the copies of the minutes in evidence was annotated in handwriting; and the copies bear a fax imprint that indicates they were sent by Lonsdale on 5 April 2000. The minutes include the following items:

3.26	Bonus to met [sic] with Beach to finalise the contract details with a view to have the contract documents issued and executed as soon as possible.	Bonus	5/4/00
3.27	John Stringer will attend site meetings on the last Tuesday of each month with a view to assessing the progress of works for progress claims. Beach should have their claim prepared in a draft form for this meeting.	Note
3.28	As soon as the contract documents are in place John Stringer should be issued with a copy to enable him to provide his initial assessment to the bank to allow funding to commence.	Bonus
3.29	Beach tabled a claim being part of progress claim one for an early payment. Bonus to process.	Bonus	11/4/00

94. On the annotated copy of the minutes, there are handwritten ticks against items 3.28 and 3.29. Against item 3.27 are the handwritten words “RT [Richard Townsend] TO DRAFT FOR JF [John Fredericks] (END OF MONTH)”. What is evident in comparing the minutes of this meeting with those of the previous meeting is that when an item is completed or no longer relevant to note (as, for example, item 2.32 of the previous minutes), it appears to be deleted in the following minutes but where the item remains outstanding (such as item 3.27, which was item 2.34 in the previous minutes) it is repeated.

95. Also in evidence were handwritten notes of this site meeting, the first note being “‘FINAL CONTRACT DETAILS TO BE FINALISED”.

96. Relevantly, in terms of the chronology, it was following this meeting (consistent with the time frame appearing against item 3.26) that the revised letter of acceptance dated 5 April 2000 was sent by Bonus. The response to that letter from Beach on 10 April 2000 was to advise as to the “only amendment required to complete the Letter of Acceptance” and to note that Mr Fredericks “will discuss this with you at tomorrow’s meeting”. The amendment there proposed was as to item 11 – relating to the date for practical completion.

Site Meeting No 4 – 11 April 2000

97. Site meeting No 4 took place on 11 April 2000. Again, Mr Bonus was not in attendance at that meeting but was recorded on the distribution list for the minutes. Three copies of the minutes for this meeting were in evidence (two annotated in handwriting) and there were handwritten notes of the meeting. The copies each bear a fax imprint showing that they were sent by Lonsdale on 13 April 2000. The minutes include the following items:

4.21	A final agreed letter of offer has been issued. Bonus to prepare the contract documents for executing.	Bonus	14/4/00
4.22	John Stringer will attend site meetings on the last Tuesday of each month with a view to assessing the progress of works for progress claims. Beach should have their claim prepared in a draft form for this meeting. Given the progress with the contract finalisation as noted above, the meeting to be held on 1 May should be attended by John Stringer. Bonus to arrange for his attendance.	Bonus	24/4/00
4.23	As soon as the contract documents are in place John Stringer should be issued with a copy to enable him to provide his initial assessment to the bank to allow funding to commence. These documents should be issued to him as soon as possible.	Bonus	17/4/00
4.24	Beach confirmed that Bonus had issued the Progress Claim Certificate for the recent claim. Beach should present this claim to the client for payment.	Beach

98. On one of the annotated copies, there is a notation against item 4.21, “AWAIT RECEIPT”; against item 4.22, “CLAIM 18/4”; and against item 4.24, “COMPLETE 11/4”, with all items under Administration being ticked. On the other annotated copy, all the items under the heading “Administration” are ticked (and item 4.25, not reproduced here, has against it the words “GB AWAIT”, which suggests that this was Mr Bonus’ copy of the minutes).

Site Meeting No 5 – 18 April 2000

99. Site meeting No 5 took place on 18 April 2000. The distribution list for the minutes includes for the first time “Meridian Estates” and “David & Gwen King” (seemingly as one recipient, with one fax number there recorded). There were three copies of these minutes in evidence, two bearing handwritten annotations. The fax imprint shows that they were sent from Bonus to Beach. The minutes include the following items:

5.27	Bonus to prepare the contract documents for executing. Later: Awaiting confirmation from lawyers as to Principal in the contract.	Bonus 14.04.00
5.28	John Stringer will attend site meetings on the last Tuesday of each month with a view to assessing the progress of works for progress claims. Beach should have their claim prepared in a draft form for issue prior to this meeting. Given the progress with the contract finalisation as noted above, the meeting to be held on 2 May should be attended by John Stringer. Bonus to arrange for his attendance, subject to submission of claim from Beach.	Bonus 24.04.00
5.29	As soon as the contract documents are in place John Stringer should be issued with a copy to enable him to provide his initial assessment to the bank to allow funding to commence. These documents should be issued to him as soon as possible.	Bonus 17.04.00

100. Of relevance to note is that the entry commencing “Later” in item 5.27 is typewritten. It appears therefore to have been an addition made before distribution of the minutes but after the site meeting. (One might infer from the word “later” that this was to indicate that this reflected the understanding of the minute-taker gleaned from some communication after the site meeting.)

101. On one of the annotated copies there is an entry (in block lettered handwriting similar to that on the contract documents) noting the date the claim certificate was issued (1/5), the date it was signed and returned (2/5) and “NOTE: DATED 20/4”. There is a tick against the first sentence in item 5.27.

102. On the second of the annotated copies there is a tick against item 5.27 and the words against the first sentence of that item “AWAIT”. Against item 5.28, there are a number of entries: “RANG MICK K”; “GB HAS ALL INFO FOR MEETING TUESDAY”; “CONTACT FOR SIGNING!”; “+STRINGER WILL BE THERE TOO”; and “STRINGER CANCELLED” (this last entry suggesting that the entries were cumulative). There is also an entry against this item, “CLAIM SUBMITTED 20/4”. Against item 5.29 are the words “AWAIT. 26/4”.

103. There was also in evidence a handwritten note of site meeting No 5. It appears to relate only to building issues. In particular, there is no reference to the arrangements for contract execution (nor is there any such reference in handwritten notes of later meetings).

104. The Owners Corporation relies on the statement recorded in the typewritten minutes at item 5.27 (“Awaiting confirmation …”) as an admission made by the Kings, through their agent Mr Bonus, to Mr Fredericks shortly before the meeting of 18 April 2000. The Owners Corporation notes that Mr Fredericks, in his affidavit (at [22]) gave evidence that:

372. I have also now had the advantage of reading White JA’s reasons for judgment, which focusses on the proposition that it is now known that the work done on the site did not comply with the Building Code of Australia, and thus was in contravention of condition 53 of the consent. In particular, in respect of item no 30, Mr Grubits determined that CP2 and EP1.4 of the BCA had not been met. CP2 is a performance requirement, which provides:

“CP2 (a) A building must have elements which will, to the degree necessary, avoid the spread offire-

(i) to exits; and

(ii) to sole-occupancy units and public corridors; and

(iii) between buildings; and

(iv) in a building.

(b) Avoidance of the spread of fire referred to in (a) must be appropriate to-

(i) the function or use of the building; and

(ii) the fire load; and

(iii) the potential fire intensity; and

(iv) the fire hazard; and

(v) the number of storeys in the building; and

(vi) its proximity to other property; and

(vii) any active fire safety systems installed in the building; and

(viii) the size of any fire compartment; and

(ix) fire brigade intervention; and

(x) other elements they support; and

(xi) the evacuation time.”

373. Compliance with CP2 is evaluative. It turns on an evaluation that the “elements” will avoid the spread “to the degree necessary” and in a way which was “appropriate” having regard to 11 specified characteristics of the building. The other requirement, EP 1.4, is of the same nature. It imposes a requirement that an automatic fire suppression system “be installed to the degree necessary” to control the development and spread of fire in a way which was “appropriate” to the specified characteristics of the building.

374. There are many ways in which those requirements can be satisfied. It is easy to envisage circumstances where there will be a dispute as to whether a proposal is “appropriate” to satisfy those requirements.

375. The contestability of those requirements is made explicit in condition 54 of the consent, insofar as it required supporting plans, specifications and details “demonstrating” compliance with the BCA. Conditions 53 and 54 were as follows:

“53. That all relevant sections of the BCA shall be complied with.

54. That an application for a construction certificate, with supporting plans, specifications and details demonstrating compliance with conditions of this consent and the Building Code of Australia shall be lodged and no building or excavation work shall be commenced until that application has been approved and at least two days written notice of the intention to commence work has been given to the Council.”

376. One of Mr Grubits’ reports records that an application for the construction certificate was made on 24 February 2000. There is no reason to think that there was any non-compliance with condition 54, or that work was done in advance of the issue of a construction certificate (which would have been contrary to (former) s 81A of the Environmental Planning and Assessment Act). Further, at the time, the certifying authority was forbidden from issuing a construction certificate authorising a change in building use unless (a) the fire protection and structural capacity of the building will be appropriate to the new use (former Environmental Planning and Assessment Regulation 1994, cl 79E) and (b) the building would comply with the relevant requirements of the Building Code of Australia (former Environmental Planning and Assessment Regulation 1994, cl 79G).

377. The circumstances confronting the notional builder with a construction certificate and plans and specifications at the time may thus be summarised as follows.

378. If (as is now known to be necessary in order to achieve compliance with the BCA) additional sprinklers were installed in voids above bathrooms, ensuites, laundries and in sub-floor voids, that would not accord with the specifications, and thus would be a breach of (the notional) contract. It would be a breach of statutory warranty in s 18B(a). It would be unauthorised work liable to be enjoined by the consent authority (or indeed, “any person” under the open standing provisions – see former s 123 read with former s 122 of the Environmental Planning and Assessment Act), and which would, subject to defences, give rise to the offences created by former s 125 of that Act. It would be (or ought to be) be impossible to obtain certification that the work complied with the approved plans and specifications. And the fact that a construction certificate had issued meant that the notional builder could reasonably assume that the certifying authority had consider that the plans yielded a result which complied with the Building Code of Australia.

379. Although it is now known that the construction certificate should not have issued, my impression from the limited material in the appeal books (no submissions were made on this point) is that demonstrating all that is involved in that proposition, in its application to this development, was a far from straightforward matter.

380. Ultimately, I respectfully disagree with the concluding reasoning of White JA in relation to these grounds. I do so not because I have reached any final conclusion on the questions of law which are involved, turning as they do upon inconsistent statutory warranties in the notional contract, one requiring construction in accordance with the plans and specifications, the other requiring an outcome that the structure comply with the Building Code of Australia. I do not express a view on whether and if so how that conflict is to be resolved. Rather, I am not prepared to resolve this aspect of the appeal based on the way the parties have hitherto chosen to argue it.

381. Most of the oral and written submissions were directed to the factual matters relevant to grounds 1 and 2. The entirety of the written and oral submissions on grounds 3 and 4 reflected the parties’ choice to argue these grounds in the abstract, by reference to the genus of “design defects”, and on the basis that there is no hierarchy between the statutory warranties.

382. I appreciate that there were good reasons for adopting that stance. Grounds 1 and 2 represent, by far, the largest component of the damages to which the owners corporation is entitled, and were factually intensive. Further, the owners corporation’s submission on grounds 3 and 4 was supported by statements in a body of decisions at first instance, including in The Craftsmen Restoration & Renovations Pty Ltd v Boland [2008] NSWSC 660 at [96], in The Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612 at [329]-[330] and The Owners - Strata Plan No 68372 v Allianz Australia Insurance Ltd [2014] NSWSC 1807 at [76].

383. However, contrary to the appellant’s submissions, I do not regard the question as merely whether one statutory warranty has priority over the other. In my view, it is necessary to consider the entirety of this highly regulated regime, and that includes the resolution of the contradictory statutory and contractual obligations, some of which are enforceable at the instance of any person and whose breach gives rise to criminal sanctions.

Ground 4(i)

384. As Ward JA observes, this ground was far from the forefront of the appellant’s submissions. I have a similar difficulty with resolving it based on the submissions which have hitherto been made.

385. The primary judge found, in accordance with the unchallenged evidence of Mr Grubits, that “the relevant items were not shown in the drawings or specifications that formed part of the contract” (at [66]). The respondents submitted that construing the statutory warranties in such a way as to impose on a builder liability for failing to identify defects or omissions in plans and specifications which it was not engaged – or even qualified – to prepare was illogical and contrary to common sense. It is, at the least, counter-intuitive. The builder’s obligation was to undertake residential building work in accordance with the plans and specifications contained in the contract and which had been approved by council. To take item 30 by way of example, the specifications did not provide for pipes and sprinklers in the ceiling and sub-floor cavities. It is not reasonable to expect physical work to be done other than in accordance with development consent and building approval. The plans and specifications did not require sprinklers to be installed in certain ceiling and sub-floor voids. Not lightly should the conclusion be reached that the builder would be in breach of a warranty if it undertook the work on the plans and specifications but failed to undertake additional work which did not appear on the plans and specifications.

Conclusion

386. Mine is a dissenting view on these grounds. Were it otherwise, I would favour directing the parties to make further submissions directed to how the construction favoured by the appellant sits with the balance of the regime. In the absence of submissions, I do not think it would be fair to either of the parties to go significantly beyond the written and oral submissions and resolve these issues summarised above. They are neither unimportant nor, to my mind, straightforward.

387. However, there is no good reason to require the parties to take that course in order to permit a dissentient to reach a concluded view. Accordingly, it is sufficient that I indicate that at present I would allow the appeal, set aside the judgment below, note that success on grounds 1 and 2 entitles the appellant to judgment in its favour of $4,622,859.69, and that I would permit the parties to be heard further in relation to grounds 3 and 4.

388. WHITE JA: I also have had the advantage of reading in draft the judgment of Ward JA. I agree with her Honour’s reasons and with the additional reasons of Leeming JA for concluding that the Kings were parties to the building contract.

389. I also agree with Ward JA’s conclusion that the Kings were liable as developers under s 18C of the Home Building Act for breach of the statutory warranty in s 18B(c), notwithstanding that the non-compliance of the residential building work with the law was the result of design defects. However, I reach that conclusion by a different route from her Honour’s.

390. I do not consider there is sufficient reason to depart from the view expressed by this Court in The Owners – Strata Plan No. 64757 v MJA Group Pty Ltd (2011) 81 NSWLR 426; [2011] NSWCA 236 that where there is a contract between the developer and the builder, s 18C requires the creation of a notional contract between the developer and the owners’ corporation on the same terms as the actual contract between the developer and the builder. In my view that conclusion was part of the reasons that led to the decision in MJA Group that the owners’ corporation’s claim in that case was statute-barred. I agree with Leeming JA’s reasoning that s 18C requires the making of the counter-factual assumptions to which his Honour refers and that leads to the conclusion that the written contract included the plans and specifications for the residential building work that were contained in Bonus’ building contract.

391. The owners’ corporation alleged that Beach had breached the warranty in s 18B(c) which required that the work comply with the law. The expert, Mr Grubits, concluded that parts of the work did not comply with the Building Code of Australia (“the BCA”). The BCA was part of the law applicable to the construction of the building.

392. Contrary to the view of Leeming JA at [348], the plans and specifications were not compliant with all of the terms of the development approval as the work was required to comply with the BCA. The point made by the Kings in their written submissions was that the statutory warranty in s 18B(c) was not that the plans and specifications themselves complied with the law, but rather, so the Kings submitted, that work done in accordance with the plans and specifications complied with the law.

393. The primary judge observed (at [65]):

“65. Relying on the reports of Mr Grubits, the Owners Corporation submits that each of these defects involves a breach of the warranty implied by s 18B(c) (that the work will comply with any law) because the relevant work did not comply with the Building Code of Australia 1996 (BCA). That breach of the law arises because the Development Approval in respect of the project imposed as condition (53) on the approval that ‘all relevant sections of the BCA shall be complied with’. Section 76A(1) of the Environmental Planning and Assessment Act 1979 (NSW) (the EPA Act) relevantly provided:

If an environmental planning instrument provides that specified development may not be carried out except with development consent, a person must not carry the development out on land to which the provision applies unless:

(a)      …

(b)      the development is carried out in accordance with the consent and the instrument.

The result is that a failure to comply with the relevant provisions of the BCA is a breach of s 76A(1) of the EPA Act.”

394. The Kings did not dispute that a failure to comply with the relevant provisions of the BCA was a breach of s 76A(1) of the Environmental Planning and Assessment Act 1979 (NSW). Moreover, clause 78A of the Environmental Planning and Assessment Regulation 1994 (as amended by the Environmental Planning and Assessment Amendment Regulation 1998 and the Environmental Planning and Assessment Amendment Regulation 1999), as in force at July 2000, provided that:

“All building work (other than work relating to the erection of a temporary building) must be carried out in accordance with the requirements of the Building Code of Australia (as in force on the date the application for the relevant construction certificate or complying development certificate was made).”

395. The primary judge said:

“66.   Mr Grubits expresses the unchallenged opinion that each of the identified breaches involved a failure in design – that is, the relevant items were not shown in the drawings or specifications that formed part of the contract.

67. In my opinion, the relevant defects do not involve a breach by Beach (or the Kings) of the warranty implied by s 18B(c) of the HBA. That warranty is not a warranty that the project will comply with the law. It is a warranty that ‘the work will be done in accordance with … the law’. The ‘work’ is the work done under the contract into which the warranties are implied. In this case, Beach was not responsible for the relevant design. Its obligation under the contract was to construct the development in accordance with the plans and specifications that formed part of the contract. The warranty was not a warranty that those plans and specifications complied with the law but a warranty that the work done in accordance with the plans and specifications complied with the law. That warranty was not breached.”

396. In fact, the work done in accordance with the plans and specifications did not comply with the law. This was the result of defective design. The issue thrown up by the asserted conflict between the warranties in s 18B(a) and (c) in the circumstances of this case are not resolved by the characterisation of “the work” in s 18B(c) adopted by the primary judge.

397. The primary judge’s finding is consistent with the reasoning of Mr Grubits that in his opinion the warranty in subpara (a) of s 18B took precedence over the warranty in subpara (c) so that if the reason that the residential building work did not comply with the law was because of a defect in the plans and specifications, then the statutory warranty in s 18B(c) was not breached. Mr Grubits identified four reasons for that opinion, namely:

“-    The builder has contractual obligations to build according to the plans and specifications.

-    The builder is unlikely to possess the specialist BCA expertise required to determine compliance with the BCA, particularly for a complex building with a number of Alternative Solutions.

-    The builder does not have design responsibility and therefore has to

accept design advice, and

- The hierarchy of the clauses in the HBA can be considered to infer a

priority order.”

398. To take the case of item no. 30 to which Leeming JA refers, being the absence of sprinkler protection in voids, Mr Grubits said that the performance requirements “CP2 and EP1.4” in the BCA were not met. This was a design error as the sprinkler design drawings did not show sprinklers in concealed spaces. Mr Grubits said that this was a failure to comply with performance requirements of the BCA “CP2 and EP1.4”. Clause CP2 contained the requirement that a building have elements which would, to the degree necessary, avoid the spread of fire to exits and to sole occupancy units and public corridors. EP1.4 was a performance requirement that an automatic fire suppression system be installed to the degree necessary to control the development and spread of fire appropriate to the size of the fire compartment, the function or use of the building, the fire hazard and the height of the building.

399. The warranties in s 18B (set out in the judgment of Ward JA at [240]) are cumulative; each can be considered independently and without reference to precedence. If the warranties are complied with the residential building work will be carried out in a proper and workmanlike manner and in accordance with the plans and specifications in the contract, the materials will be good and suitable and new (unless otherwise stated), the work will comply with any law, the work will be done with due diligence and within the time stipulated or within a reasonable time, the result of the work will be a dwelling reasonably fit for occupation as such, and, that the work and materials will be reasonably fit for a specified purpose or result if that purpose or result has been made known in a way so as to show that the owner relies on the licence holder’s skill and judgment. The assumption is that if the work is done in accordance with the plans and specifications it will comply with the law.

400. The issue raised in this case is what is the position if work is done in accordance with plans and specifications set out in the contract, but that work does not comply with a law? The same question might arise under s 18B(b) that provides a statutory warranty that materials supplied will be good and suitable for their purpose. What is the position if the specifications provide for the use of materials that are not suitable for their purpose?

401. The primary judge considered that the “work” referred to in s 18B(c) is the work done under the contract into which the warranties are implied and because Beach’s obligation was to construct the development in accordance with the plans and specifications that formed part of the contract, there was no breach of the warranty in s 18B(c) (at [67] quoted at [395] above).

402. I do not agree. The expression “the work” is first used in s 18B(a) which stated (at that time) that “the work” will be performed in a proper and workmanlike manner and in accordance with the plans and specifications set out in the contract. That is a reference to “residential building work” referred to in the chapeau to s 18B. The reference to “the work” in s 18B(c) is again a reference to residential building work. As Ward JA observes (at [271] above) in s 18C references to “the work” are to the “residential building work” which has been “done” by the developer. “Residential building work” means, relevantly, “any work involved in ... the construction of a dwelling” (definitions, s 3). It was the work involved in the construction of the dwelling that was required to comply with any law.

403. This conclusion follows from the text of the legislation. It is confirmed by the purpose of the provision explained in the Minister’s Second Reading Speech quoted by Ward JA at [289] that emphasises the then government’s intention to “tighten up” the content of home building contracts to redress what was considered to be a process that hitherto had been heavily skewed in favour of the builder. There is nothing in the Second Reading Speech that suggests that any of the statutory warranties could be modified by the contractual terms. To the contrary, the Minister said that “these statutory warranties will not be able to be excluded by any provision of the contract ...”.

398. If the construction of s 18B(c) adopted by the primary judge were correct then it would follow that not only the warranty provided in that paragraph, but also the warranty provided in s 18B(b) could be excluded by a builder’s including in the building contract plans for the construction of the building and specifications for the materials to be used in that construction that did not comply with the requirements of the Building Code of Australia, notwithstanding that the Building Code had the force of law. That construction should not be accepted.

399. The Kings did not seek to support the construction adopted by the primary judge by reference to the reasons in Mr Grubits’ report quoted at [397] above that:

“-    The builder is unlikely to possess the specialist BCA expertise required to determine compliance with the BCA, particularly for a complex building with a number of Alternative Solutions.

-    The builder does not have design responsibility and therefore has to

accept design advice, and

- The hierarchy of the clauses in the HBA can be considered to infer a

priority order.”

406. The factual premises of that contention should be accepted in the absence of any contradictory material. But the question is not whether it is fair to impose upon the builder responsibility for the failure of the building work to comply with the BCA, but whether s 18B(c) imposes that responsibility. Where the BCA has the force of law, that responsibility is imposed. If the builder has to rely upon the expertise of another, such as an architect or a fire safety consultant, to satisfy the builder’s statutory warranty, then the builder might be well advised to negotiate contractual protection for the builder’s potential statutory liability. That is not such an extreme outcome that would displace what is otherwise the natural construction of s 18B(c).

407. The order of provisions is sometimes relevant in the construction of deeds or contracts. Where a contract or deed contains conflicting provisions such that a later provision “destroys altogether the obligation created by the earlier clause” (Forbes v Git [1922] 1 AC 256 at 259) the later provision will be rejected as repugnant to the former. This is a principle of last resort to which recourse may be had only when every other avenue of resolving inconsistencies has been exhausted (Hume Steel Ltd v Attorney-General (Vic) (1927) 39 CLR 455 at 465; Durbin v Perpetual Trustee Co Ltd (1995) NSW ConvR 55-725 at 55,603-4). Generally, inconsistencies in a contract can be resolved by ascertaining the parties’ intentions from the language they have used, considering the document as a whole, and endeavouring to harmonise the conflicting parts so as to give effect to each of them. If the later clause can be read as qualifying rather than destroying the effect of the earlier clause, the two will be read together (Australian Guarantee Corporation Ltd v Balding (1930) 43 CLR 140 at 151; Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corp Pty Ltd (No 1) (1993) 178 CLR 379 at 386-7; Lewison and Hughes, The Interpretation of Contracts in Australia (2012, Law Book Co) [9.08], [9.13]).

408. The statutory warranties can be read together. The builder warrants both that the work will be carried out in accordance with the plans and specifications and that it will comply with the law. Impliedly the builder warrants that the construction of the work in accordance with the plans and specifications will comply with the law. The order of precedence does not mean that s 18B(c) has no application if the non-compliance with the law is the result of design defects in the plans and specifications.

409. The construction of s 18B that I prefer is consistent with and supported by the decisions of Howie J in The Craftsman Restoration & Renovations v Boland [2008] NSWSC 660 at [96]-[97]), Ward J (as her Honour then was) in The Owners Strata Plan 62930 v Kell & Rigby Holdings Pty Ltd [2010] NSWSC 612 at [329]-[330], and Ball J in The Owners – Strata Plan No 68372 v Allianz Australia Insurance Ltd [2014] NSWSC 1807 at [76].

410. In my view, the appeal in relation to the primary judge’s findings on “design defects” should be upheld on the ground that the defects in question contravened the statutory warranty in s 18B(c) in the contract between Beach and Meridian and the Kings, that is imported into the notional contract between the Kings and the owners’ corporation under s 18C.

411. For these reasons I agree with the orders proposed by Ward JA.

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Decision last updated: 03 August 2018